This week’s notable decision, Hurtado et al. v. Rainbow Disposal Co., No. 8:17-CV-01605-JLS-DFM, 2018 WL 3372752 (C.D. Cal. July 9, 2018), is a victory for ESOP plan participants, one that you don’t see too often these days.

This putative ERISA class action concerns a 2014 transaction in which waste management giant Republic Services bought Rainbow for $112 million in cash plus other consideration, according to documents filed with the SEC.  Yet according to separate documents filed with the DOL and IRS, the ESOP (which had owned 100% of Rainbow before the sale) received either $50.8 million or $48.8 million for its Rainbow stock. Of the $50.8 million or $48.8 million initially received, the ESOP did not initially distribute approximately $15 million which was held for nearly three years invested in treasuries yielding virtually no investment returns.

Prior to the sale, corporate insiders used company assets for their own self-dealing transactions which no fiduciary ever corrected.  Additionally, each of the ESOP fiduciaries arranged to receive personal consideration as part of the sale. Finally, the ESOP participant employees were never given the opportunity to vote on the sale or the price, and after the sale, the ESOP’s fiduciaries refused to provide the participants with basic documents or information relating to the 2014 transaction.

The Complaint consists of 14 counts alleging breaches of the fiduciary duties of prudence, loyalty, diversification, failure to follow plan documents, as well as prohibited transaction claims under ERISA § 406 and failure to properly disclose information and documents. The Defendants including Republic, the ESOP Committee members, Trustee GreatBanc, and the Rainbow Board members, filed five separate motions to dismiss under Rule 12, attacking all 14 of the plaintiffs’ causes of action. Judge Staton denied the motions in their entirety. 

The court found that all of the claims were adequately pleaded. The court also ruled that many of the Defendants’ arguments implicated factual and evidentiary considerations not proper to resolve under Rule 12 and observed that no proof of harm is required for a plaintiff to make out a claim of breach of the fiduciary duties enumerated in ERISA § 404. As to the § 406 prohibited transaction claims, the court observed that when “an ESOP fiduciary also serves as a corporate director or officer, his ERISA duties extend to all business decisions from which he could directly profit.” And, fiduciaries can be liable under 406 not merely for the underlying self-dealing, but also for failing to sue themselves to remedy their breaches.

The plaintiffs are represented by friends-of-ERISA-Watch Joseph Barton of Block & Leviton, LLP, and Joseph Creitz of Creitz & Serebin LLP.

On an unrelated note, if you’re interested in learning a little more about me personally (beyond my blunt and correct views about ERISA :)), check out my personal account recently published in Northern California Super Lawyers.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Third Circuit

University Spine Center v. Horizon Blue Cross Blue Shield Of New Jersey, No. CV17193JLLJAD, 2018 WL 3412845 (D.N.J. July 12, 2018) (Magistrate Judge Joseph A. Dickson).  In this lawsuit where the court determined that the policy’s anti-assignment clause barred the provider’s claims for reimbursement and granted summary judgment to Defendant, the court denied Defendant’s motion for attorneys’ fees because it concluded that the five-factor Ursic analysis does not support an award of attorneys’ fees.  The court also denied the provider’s cross motion for attorneys’ fees, finding that Plaintiff’s success on Defendant’s fee motion is neither “substantial” nor a “central issue” in the case which would merit an award of fees.

Sixth Circuit

Williams v. Graphic Packaging Int’l, Inc., No. 1:16-CV-00102, 2018 WL 3364395 (M.D. Tenn. July 10, 2018) (Judge William L. Campbell, Jr.).  The court denied Defendant’s motion for attorneys’ fees, which it made on the grounds that Plaintiff lacked any evidentiary basis that the cost of his medical care played a role in terminating his employment.  While the court granted Defendant’s motion for summary judgment on all claims, it denied the fee request since Plaintiff did not exhibit bad faith in pursuing his claims, there is little question that Plaintiff cannot pay the amount of requested fees due to his limited income and inability to work, a fee award could deter future ERISA litigants, this case does not present any significant legal questions under ERISA, and the merits of Plaintiff’s claim appear no more devoid of merit than that of any other losing litigant. 

Breach of Fiduciary Duty

First Circuit

Short v. Brown University, No. C.A. 17-318 WES, 2018 WL 3377702 (D.R.I. July 11, 2018) (Judge William E. Smith).  In this “look-alike” lawsuit filed by faculty of a private university alleging that the university imprudently managed their retirement accounts, the court granted the university’s motion to dismiss in part.  The court determined that Plaintiffs fail to state a claim that the university breached its duty of loyalty.  Plaintiffs’ allegation that a prudent fiduciary would have chosen one, rather than two, record-keepers suffices at this stage to state a plausible claim for violation of the duty of prudence.  Plaintiffs’ allegation that the university’s Plans consistently underperformed satisfies Plaintiffs’ burden to overcome a motion to dismiss the claim that the university failed to engage in a prudent process for the selection and retention of Plan investment options.

Second Circuit

Allen v. Credit Suisse Sec. (USA) LLC, No. 16-3327-CV, __F.3d__, 2018 WL 3352596 (2d Cir. July 10, 2018) (Before: Jacobs, Leval, Raggi, Circuit Judges).  In this putative class action against twelve banks and their affiliates for breach of ERISA fiduciary duties owed to various ERISA plans or, in the alternative, for Defendants’ knowing participation in prohibited transactions as non-fiduciary parties-in-interest, the court determined that Plaintiffs fail to state plausible ERISA claims because the facts alleged do not show that Defendants exercised the control over Plan assets necessary to establish ERISA functional fiduciary status.  The district court did not abuse its discretion or commit legal error by denying adjournment in anticipation of further amendment to the complaint.

Fifth Circuit

HC4, Inc. Employee Stock Ownership Plan v. HC4, Inc., No. 4:15-CV-872, 2018 WL 3388870 (S.D. Tex. July 12, 2018) (Judge Melinda Harmon).  The court determined that Hallmark’s decision to merge its company with Esther Francis’s companies was not in the capacity of a fiduciary of the ESOP and its business decisions are shielded by the business-judgment rule. The court determined that Defendant’s conduct did not constitute a breach of fiduciary duty under ERISA § 404 (but noted that Plaintiff raised many sound arguments regarding prohibited transactions of ESOP fiduciaries in violation of ERISA § 406, which was not the subject of Plaintiff’s complaint).

Sixth Circuit

Owner’s Management Company v. Arthur J. Gallagher & Co., No. 1:17CV881, 2018 WL 3407580 (N.D. Ohio July 13, 2018) (Judge Christopher A. Boyko).  In this lawsuit by an independent senior living and multi-family residences property management company against an insurance brokerage and risk management company for causing its self-funded employee healthcare benefit plan to be underfunded and then terminated, the court denied reconsideration of its dismissal of the breach of fiduciary duties claim.  The court did permit Plaintiff leave to amend the Complaint in order to clarify that the Plan was not “terminated” but rather “convert[ed]…to a fully insured plan” which would entitle Plaintiff relief under Section 502(a)(2). 

Ninth Circuit

Hurtado et al. v. Rainbow Disposal Co., No. 817CV01605JLSDFM, 2018 WL 3372752 (C.D. Cal. July 9, 2018) (Judge Josephine L. Staton).  See Notable Decision summary above.

D.C. Circuit

Middleton v. United States Dep’t of Labor, No. 1:17-CV-00878 (TNM), 2018 WL 3369680 (D.D.C. July 10, 2018) (Judge Trevor N. McFadden).  The court dismissed the pro se plaintiff’s negligence and breach of fiduciary duties claims against the DOL on the basis of the doctrine of res judicata because there has already been exhaustive litigation between the same parties involving the same cause of action and there has been a final, valid judgment on the merits by a court of competent jurisdiction.

Disability Benefit Claims

Third Circuit

Seeman v. Metro. Life Ins. Co., No. 1:12-CV-498-GMS, 2018 WL 3344226 (D. Del. July 9, 2018) (Judge Paul L. Maloney).  The court determined that it was MetLife’s burden to demonstrate a factual basis for any conclusion to the contrary that Plaintiff was disabled as a result of certain physical conditions, including fibromyalgia and chronic fatigue syndrome.  The court found MetLife’s structural conflict of interest to be “neutral” since it knows little about MetLife’s conflict and MetLife provided some evidence that it took steps to reduce potential biases.  The court determined that MetLife’s termination of long-term disability benefits was arbitrary and capricious because MetLife failed to address how her physical diagnoses impact her earning capacity notwithstanding MetLife’s reliance on an ALJ decision rejecting Plaintiff’s SSDI claim.  

Fourth Circuit

Jones v. Unum Life Ins. Co. of Am., No. 17-1933, __F.App’x__, 2018 WL 3385433 (4th Cir. July 11, 2018) (Before AGEE and THACKER, Circuit Judges, and SHEDD, Senior Circuit Judge).  The court affirmed the grant of summary judgment to Defendants on her complaint seeking disability benefits and statutory penalties for Defendants’ failure to timely produce a copy of the short term disability plan document.

Sixth Circuit

Ezerski v. Kirlins, Inc., Long-Term Disability Plan, et al., No. 3:17-CV-69, 2018 WL 3352945 (S.D. Ohio July 9, 2018) (Judge Walter H. Rice).  On de novo review of the administrative record, the Court concluded that Plaintiff has failed to prove that she is entitled to continued long-term disability benefits under the terms of the Plan as a result of degenerative disc disease and carpal tunnel syndrome.  The considered whether she was unable to perform with reasonable continuity the material duties of any occupation.  The court found that a functional capacity evaluation supporting her claim is not reliable objective evidence of her true functional capabilities because there are performance concerns and it is inconsistent with contemporaneous medical records of treating physicians.  Plaintiff’s vocational report is also flawed to the extent it relies on the FCE.  The court rejected Plaintiff’s challenge to Northwestern’s reliance on the file reviews of Dr. Shirley Ingram and Dr. Mark Shih.  The court denied Northwestern’s request for attorneys’ fees.

Ninth Circuit

Mullaney v. Paul Revere Life Ins. Co., No. CV16-263RAJ, 2018 WL 3328402 (W.D. Wash. July 6, 2018) (Judge Richard A. Jones).  The court considered whether it should resolve Paul Revere’s long-term disability decision on the parties’ motion for judgment under Rule 52 as opposed to summary judgment under Rule 56.  The court accepted the parties’ stipulation to de novo review.  It decided that “when applying the de novo standard in an ERISA benefits case, a trial on the administrative record, which permits the Court to make factual findings, evaluate credibility, and weigh evidence, appears to be the appropriate proceeding to resolve the dispute.”  The court granted Defendants’ Motion to Strike exhibits to Plaintiff’s declaration that included medical records and a physical capacity evaluation report that was not part of the “administrative record.”  On the merits, the court held that Plaintiff, a land use litigation attorney with fibromyalgia, “carried his burden to show, by a preponderance of the evidence, that he meets the definitions of ‘residually disabled’ and ‘disabled’ pursuant to his IDI and LTD policies, respectively.”  Plaintiff lacks cognitive and physical stamina which is an important duty of Plaintiff’s occupation as a land use litigation attorney at a law firm.


Fifth Circuit

Wittmann v. Unum Life Insurance Company of America, No. CV 17-9501, 2018 WL 3374164 (E.D. La. July 11, 2018) (Magistrate Judge Joseph C. Wilkinson, Jr.).  In this disability benefit dispute, the court determined that the financial incentives of Unum’s reviewing doctor, Dr. James H. Bress, are relevant to the conflict of interest issue.  The court ordered that subject to the protective order already in place in this case, Dr. Bress must “Produce any single record or combination of records (for example an excerpt from your annual federal income tax return) sufficient to show your total compensation for medical services of any kind, including but not limited to patient care, medical care, medical records review, expert services and consulting services for the years 2014-2017.”  In addition, he must produce “any and all records related to your total compensation for services you rendered to Unum Life Insurance Company of America, or any and all related affiliates, parent company, and/or subsidiaries…for the years 2014 through 2017.”

ERISA Preemption

Sixth Circuit

Cash v. Country Tr. Bank, No. 17-CV-2611-SHM-TMP, 2018 WL 3371122 (W.D. Tenn. July 10, 2018) (Judge Samuel H. Mays, Jr.).  In this dispute over 401(k) loans, the court found preempted Plaintiff’s breach of contract, fraud, conversion and unjust enrichment claims based on alleged misrepresentations regarding and misappropriation of funds earmarked for the repayment of Plaintiff’s 401(k) loan and the alleged failure to provide Plaintiff with a second 401(k) loan upon Plaintiff’s request.

Life Insurance & AD&D Benefit Claims

First Circuit

Gordon v. Cigna Corporation, et al., No. GJH-17-2835, 2018 WL 3375099 (D. Md. July 11, 2018) (Judge George J. Hazel).  The court determined that Plaintiff’s second lawsuit against Defendant related to her deceased husband’s life insurance benefits is time-barred and precluded by the doctrine of res judicata.  Plaintiff had actual knowledge of the essential facts of her claim more than three years before she filed her complaint.  Specifically, she knew that Defendant was utilizing a retained asset account to distribute her benefit funds and setting the interest rate when she received a letter from Defendant in 2014 informing her of such.  In the first lawsuit she challenged the amount of funds distributed and, in this lawsuit, she is challenging the manner in which Defendant distributed her funds.  Both claims arise from the same operative facts and series of transactions.  

Seventh Circuit

Cehovic-Dixneuf v. Wong, No. 17-1532, __F.3d__, 2018 WL 3373062 (7th Cir. July 11, 2018) (Before Bauer, Rovner, and Hamilton, Circuit Judges).  The Seventh Circuit affirmed the district court’s grant of summary judgment to the sister, as designated beneficiary, to the supplemental insurance policy at issue notwithstanding the various equitable arguments made by the insured’s ex-wife.  The court held that the policy was outside of ERISA’s safe-harbor provision because the employer maintained substantial administrative functions beyond the limited ones allowed by the safe harbor provision.  Thus, the policy is governed by ERISA and benefits must be paid according to the governing documents, including beneficiary designations.  The court also held that the district court acted within its discretion in denying the ex-wife’s motion to alter or amend judgment.

Medical Benefit Claims

Tenth Circuit

IHC Health Servs., Inc. v. Intermountain United Food & Commercial Workers & Food Indus. Health Fund, No. 2:16-CV-01157-EJF, 2018 WL 3350343 (D. Utah July 9, 2018) (Judge Evelyn J. Furse).  Although the administrative record is incomplete, the court determined that Intermountain’s calculation of the Usual, Customary, and Reasonable charges was not arbitrary and capricious and granted summary judgment to Intermountain on the provider’s claim for recovery of plan benefits.

Pension Benefit Claims

First Circuit

Hoffman v. Textron, Inc., No. CV 17-11849-FDS, 2018 WL 3352963 (D. Mass. July 9, 2018) (Judge F. Dennis Saylor IV).  Plaintiff, a participant in a deferred compensation plan, brought suit to reinstate annual payments to his wife upon his death after the company amended the plan to provide for a lump sum payment instead.  The court denied Defendant’s motion to dismiss.  The court determined that Plaintiffs’ claims are ripe and that there are disputes concerning the scope of the administrative record that are better reserved for summary judgment.  The court also found that Plaintiffs’ equitable estoppel claim under ERISA § 502(a)(3) is viable given the consensus among circuit courts (though the First Circuit has not decided the issue) and that Plaintiff adequately pleads the elements of equitable estoppel.

Third Circuit

Bergamatto v. Board of Trustees of The NYSA-ILA Pension Trust Fund & Charles Ward, No. CV 16-5484 (KM), 2018 WL 3412990 (D.N.J. July 12, 2018) (Judge Kevin McNulty).  Where Plaintiff alleged that he was a plan participant who was due additional pension benefits for the years 2000 through 2004 under an amendment, and that the Board erroneously denied those benefits by misinterpreting Plan provisions, and where the Board claimed that his accrual for additional benefits was barred by the terms of the governing 2010 pension plan, the court found that Board’s interpretation was not an abuse of discretion since the amendment was not in effect during 2010, which was Plaintiff’s last year of credited service.  The court also determined that statutory penalties for failure to produce plan documents is not warranted against Defendant Ward (Executive Director) because the weight of the existing case law under a de facto administrator theory fails as a matter of law.  The Board, not Ward, was the named plan administrator.

Provider Claims

Third Circuit

Shah v. Horizon Blue Cross Blue Shield Of New Jersey & Blue Cross Blue Shield Of Minnesota, No. 1:17-CV-166 (NLH/JS), 2018 WL 3410025 (D.N.J. July 13, 2018) (Judge Noel L. Hillman).  In “one of many ERISA suits” filed by a provider against his patients’ various insurance companies, the court granted Defendant’s motion for summary judgment, finding that the policy contains a valid anti-assignment clause and the anti-assignment clause has not been waived. 

New Jersey Spine and Orthopedics, LLC v. Novo Nordisk, Inc., Employee Health Plan, et al., No. CV 18-3699 (JLL), 2018 WL 3377173 (D.N.J. July 11, 2018) (Judge Jose L. Linares).  In this suit by a provider against a self-funded health plan, the court granted Defendant’s motion to dismiss because the Plan’s anti-assignment clause is valid and enforceable against Plaintiff and Defendant did not waive its right to enforce it through Aetna’s course of dealings with Plaintiff.

Univ. Spine Ctr. v. Aetna, Inc., No. 2:17-CV-08274, 2018 WL 3344237 (D.N.J. July 9, 2018) (Judge Claire C. Cecchi).  The court granted Aetna’s motion to dismiss because the Patient’s insurance policy contained a valid and enforceable anti-assignment provision and Plaintiff does not have standing to bring this action.  

Statute of Limitations

Fifth Circuit

Faciane v. Sun Life Assurance Co. Of Canada, No. CV 17-17429, 2018 WL 3391594 (E.D. La. July 12, 2018) (Judge Lance M. Africk).  In this case Plaintiff did not challenge the calculation of his long-term disability benefits until more than nine years after his claim was approved.  The court applied the “reasonableness”-type approaches adopted by the Second and Third Circuits with respect to benefits miscalculation claims brought under ERISA.  It found that Plaintiff’s claim is time-barred under both approaches.  Plaintiff has not presented new arguments that persuade the Court to adopt a different standard or deviate from its conclusion that Plaintiff’s claim is untimely.  The court denied Plaintiff’s motion for reconsideration.

Sixth Circuit

Bernaola v. Checksmart Financial LLC, et al., No. 2:16-CV-684, 2018 WL 3389900 (S.D. Ohio July 12, 2018) (Judge James L. Graham).  In this case alleging breach of fiduciary duties with respect to the fees and performance of actively managed funds of the Checksmart Financial 401(k) plan, the court granted summary judgment to Defendants on the basis that the claims are barred by the statute of limitations.  The Court declined to incorporate the good-faith standard for determining adequate consideration under § 1108 into the breach-of-fiduciary duty analysis in § 1104.  “To summarize, for the three-year statute of limitation to apply, Bernaola need not have actual knowledge of the process by which the Checksmart Plan selected the various investment options, he need only have actual knowledge of the Checksmart Plan’s investment options.”